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The collapse of one of the largest trading platforms, FTX, affected the prices of the cryptocurrency along with many other companies. Although the traditional financial sector has boldly opened up to cryptocurrencies this year, it is worth re-evaluating the potential of digital assets.
One of the largest crypto exchanges collapsed
Until a few weeks ago, Sam Bankman-Fried was considered an epochal genius in the world of technology. The young head of the company first gained notoriety through the company operating as an investment fund. Alameda Research, which he founded, has won huge amounts on arbitrage (or risk-free) bitcoin trades. Later, the idea came that instead of one trade at a time, one could target the entire market, and one could achieve more success with one’s own trading interface.
Thus was born the FTX crypto exchange, which over the years has grown into one of the biggest names in the sector. Investors simply adored the company, in January it was valued at $ 32 billion. However, in early November, everything changed.
Rumors have surfaced that a significant portion of Alameda Research’s assets consist of FTT, a token issued by FTX. Even before, the market didn’t like that one of FTX’s most active traders was its subsidiary, Alameda Research. However, as a result of financial dependence being stronger than expected, all users began to fear huge liquidity problems – and the beginning of the end had come.
Users have withdrawn billions of dollars from the FTX platform in a matter of days. The crypto exchange could not stand it and after a while could not pay everyone. Several scandals came to light, and it was also revealed that FTX had loaned Alameda Research money from its clients, so even if the company could liquidate all of its assets, it would not be able to pay everyone. The bankruptcy filing has finally arrived, and with it the turbulent times in the crypto sector.
The countries are no better either.
Last year, El Salvador made headlines by declaring bitcoin as its official currency. The Central African Republic also joined this year, but neither country has achieved breakthrough success.
Even after spending hundreds of millions of dollars, the population of El Salvador does not want to pay with bitcoins. The imposition of cryptocurrency on the country was doomed from the very beginning. People didn’t even know what bitcoin was or how it worked. The infrastructure is also imperfect: the economy is unstable, Internet coverage is weak, and customer service is almost non-existent. In addition to several disadvantages of bitcoin, its volatility was a huge problem for traders, so in the end, the people of El Salvador almost completely abandoned cryptocurrency.
Similar results could be expected in the Central African Republic. In one of the poorest countries in the world, the problem is even with electricity, let alone the introduction of cryptocurrency. However, the project was put on hold a few months after the announcement due to regulatory issues.
Bad omen for digital money
The situation is not rosy when they rely on decentralized cryptocurrencies. Nigeria received a lot of praise from the international press when it introduced its digital central bank money. Central bank digital money can be thought of as a digital copy of a country’s traditional currency. They are not necessarily based on the blockchain, but distributed ledger technology and the popularity of cryptocurrencies have clearly contributed to the R&D boom.
Since the Nigerian population is very open to digital tools, many expected central bank digital money to gain popularity, but this hypothesis seems to have been debunked. While 35 percent of the population aged 18 to 60 owned cryptocurrencies at some point, central bank digital money reached less than 0.5 percent of Nigerians. A big role in this was played by people’s distrust of the initiative.
Each month, the Peak research and consulting group provides a comprehensive overview of fintech trends and their impact on the banking, insurance, IT and government sectors. In research, we deal in detail with international fintech developments, which we also analyze in terms of opportunities and threats. If you have any questions regarding the entire circular or individual elements of it, please email us at science@peakfs.io.
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